New rules mean bytes could produce a big bite

Insurance agents want to avoid litigation, but it is not always possible. When agents become involved in litigation in federal court, it is important for agents and their attorneys to understand the new Federal Rules of Civil Procedure governing electronically stored information (ESI). The rules went into effect on Dec. 1, 2006, and apply to all cases filed after that date, as well as apply to all pending cases to the extent “just and practicable.”Understanding these new rules is important because much of an agent’s work is done on computer, and transmitted and stored electronically. The amended rules cover the following six areas relating to ESI.:

1. Definition of discoverable material:
The new amendments introduce the phrase “electronically stored information” to the rules, to acknowledge that electronically stored information is discoverable. The expansive phrase is meant to include any type of information that can be stored electronically. It is intended to be broad enough to cover all current types of computer-based information, yet flexible enough to encompass future changes and technological developments.

2. Early attention to electronic discovery issues:
The amended rules require the parties to address ESI early in the discovery process, recognizing that early attention is crucial to control the scope and expense of electronic discovery and avoid discovery disputes. Rule 26(f) expands the list of issues that must be discussed as a part of the early meet and confer process by the parties. Rule 16(b)(5) adds discovery of electronically stored information as an item that may appropriately be included in the court’s scheduling order.

Agents and their attorneys must have a basic understanding of the agent’s computer systems. Issues to consider include:

• For personal computers, what operating systems are used?
• What e-mail servers are used (e.g. Exchange)? Is there a janitorial system for e-mail or a “sweep and keep” policy?
• How are servers organized? By office? By type of data?
• How are file shares on the servers structured?
• Are internal Web sites used? Collaboration tools? Extranet?
• What voice mail system is used?
• What type of portable devices, including handhelds and removable media, are used by employees?
• What offsite storage locations are used for electronic documents? Is there long-term storage for electronic document retention?
• Can employees save files, e-mails or other data to their desktop or laptop hard drives?
• What are the backup and disaster recovery policies? How often are servers backed up?
• Are employees’ local drives backed up? Are documents saved on their personal computers or laptops?
• What happens when an employee leaves the agency?

That is a lot to discuss, but the new rules require a high level of understanding of information technology systems. Like anything in life, the more you know, the better prepared you’ll be.

3. Electronically stored information from sources not reasonably accessible:
Some electronically stored information is not reasonably accessible. Under amended Rule 26(b)(2), a responding party does not need to produce electronically stored information from sources it identifies as not reasonably accessible because of undue burden or cost. The responding party must identify the potentially responsive information that it is neither searching nor producing. If the requesting party moves to compel discovery of this information, the responding party would be required to show why it is not reasonably accessible. Once that showing is made, a court may order discovery only for good cause.

4. “Safe harbor”:
Rule 37(f) states that, absent exceptional circumstances, a court may not impose sanctions on a party for failing to provide ESI lost as a result of the routine, good-faith operation of an electronic information system. Good faith, in the routine operation of an information system, may involve modifying or suspending certain features of that routine operation to prevent the loss of information, if that information is subject to a preservation obligation. A party cannot use the routine operation of a system to destroy ESI that it should preserve. The agent must understand what ESI its system will automatically delete and modify by routine operation, to comply with good faith operation.

5. Format of production:
Rule 34(b) addresses the format of production of electronically stored information, and would permit the requesting party to designate the form or forms in which it wants electronically stored information produced. It does not require the requesting party to choose a form, but provides that if a request does not specify, or if the responding party objects to the requested form(s), that party must notify the requesting party of the form in which they intend to produce the electronically stored material — with the option of producing either in a form in which the information is ordinarily maintained, or in a reasonably usable form.

6. Asserting claim of privilege or work product protection after production:
Rule 26(b)(5) created a procedure through which a party who has inadvertently produced trial preparation material or privileged information may nonetheless assert a protective claim as to that material. It provides that once the party seeking to establish the privilege or work product claim notifies the receiving parties of the claim and the grounds for it, the receiving parties must return, sequester or destroy the specified information.

Knowing is half the battle
The amended Federal Rules of Civil Procedure are a call to become better informed about your IT capabilities. Given the sheer volume of electronic documentation that insurance agents work with, it is essential for agents and their attorneys to understand how their computer systems operate to properly handle ESI. The best time to start that education process is now.

Todd Nunn is a partner in the business litigation practice in the Seattle office of Preston Gates & Ellis LLP. E-mail: toddn@prestongates.com.

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